New Heads of BOE and BOC Stood on the Sideline in their First Monetary Meeting

The voting results recorded in the BOE minutes for the July meeting sent the sterling higher. While it was widely anticipated that the MPC members would have voted unanimously to leave the Bank rate unchanged at 0.5%, it was surprisingly that they also voted 9-0 to leave the asset purchase program unchanged at 375B pound. Previous dissenters David Miles and Paul Fishers indicated that a proposal to increase the size of the asset purchase program has become less meaningless as the central bank has been considering other measures such as forward guidance. Governor Mark Carney also voted to leave everything unchanged at his first BOE meeting.

Indeed, ahead of the release of the minutes, Fisher signaled that the paying lip service to keep the market rates low would be one of the BOE's key strategies. Yet, he affirmed that the paring of monetary stimulus was likely to be "years in the future". Regarding making forward guidance, it was indicated in the minutes that any decision about such measure would be announced on August 7 when the quarterly inflation report is published. If the guidance turns out to be insufficient policymakers still reserve the rights to implement further stimulus. The BOE would not rule out adopting "mixed strategy".

On the other side of the Atlantic, Stephen Poloz announced to keep BOC's policy rate unchanged at 1% in his first meeting as the central bank's head. He also foresaw that there would be a "gradual normalization" of borrowing costs over time. As mentioned in the post-meeting statement, the current monetary stance should remain appropriate "as long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively". Yet, he believed that "as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected" over time.

The central bank lifted the growth outlook for the country with GDP growth reaching +1.8% this year, up from April's projection of +1.5%. For 2014, the economy would expand +2.7%, down from +2.8% forecast in April. The economy would probably reach full output and inflation will reach the BOC's target of +2.0% in mid-2015.

IMOH, Clement I.
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